Retailers had a dismal start to the new year, with sales 3.7pc lower than the previous month and 0.8pc lower than the same time last year.

The Government's New Year VAT increase to 23pc may have contributed, as shoppers made big-ticket purchases in December before prices rose, analysts said. Many shops also started their sales early this year to tempt December shoppers.

The car industry suffered the biggest monthly drop in sales of 21.3pc, according to figures from the Central Statistics Office (CSO).

But it was the best performing sector in the year with an annual increase of 5.2pc.

The decrease in car sales in January reflected unusually strong December sales, further confirming the belief that consumers were buying early to avoid the VAT hike, said Davy Research economist Conall Mac Coille.

Department stores and electrical shops saw an 18.4pc and 12pc drop in sales in January, while clothing and footwear saw a 5.7pc decrease. Bar sales were down 7.7pc.

Bloxham stockbrokers analyst Alan McQuaid said there was little cause for cheer as regards personal spending in the immediate future.

Improved figures in December were probably just down to better weather than the previous year when the big freeze kept shoppers away, he said.

Retail Excellence Ireland chief executive David Fitzsimons said the Government might struggle to bring in the extra €670m it wanted from the VAT increase if sales had slumped.